NEWS RELEASE
July 23, 2004
FOR RELEASE AT 6:00 A.M. EDT FRIDAY, JULY 23, 2004
NWN REPORTS RESULTS FOR QUARTER, SIX MONTHS ENDED JUNE 30, 2004
PORTLAND, Ore. - Northwest Natural Gas Company (NYSE: NWN), dba NW
Natural, reported consolidated earnings applicable to common stock of $31.9
million, equivalent to $1.19 a diluted share, for the six months ended June 30,
2004, Mark S. Dodson, president and chief executive officer, said Friday. These
results compare to earnings of $30.6 million, or $1.18 a diluted share, in the
first six months of 2003.
"We are on pace with last year's earnings per share," Dodson said,
"despite a second quarter that was 31 percent warmer than average and an
increase in shares outstanding. Our weather and consumption normalization
mechanisms were key contributors to performance in the first six months of 2004
along with customer growth and an improving industrial market."
Second Quarter Detail
- ---------------------
Consolidated results for the quarter ended June 30, 2004, were a loss
applicable to common stock of $0.7 million, or 3 cents a diluted share, compared
to earnings of $4.3 million or 17 cents a diluted share in the second quarter of
2003.
NW Natural's results from gas utility operations in the second quarter
were a loss of $1.8 million, equivalent to 6 cents a diluted share, compared to
earnings of $2.9 million or 11 cents a share in the second quarter of 2003. As
previously reported, because the rate increases approved in NW Natural's Oregon
general rate case in late 2003 were applied predominantly to the
temperature-sensitive residential and commercial customer classes, whose
consumption patterns are seasonal, the resulting revenue increases will occur to
a greater extent in the first and fourth calendar quarters of each year than in
the second and third quarters. The higher operating costs which the revenue
increases were designed to recover are spread more evenly throughout the year.
Operating margin (gross operating revenues minus cost of sales) in the
second quarter of 2004 was $52.6 million, down $5.9 million or 10 percent from
last year. Total gas deliveries were 219 million therms, about 5 percent lower
than last year.
The primary factors affecting income and earnings from gas utility
operations in the second quarter included:
o Utility sales to residential and commercial customers were 83 million
therms, down about 25 percent from the second quarter of 2003. The
lower sales in the second quarter of 2004 were primarily due to much
warmer weather in the quarter. Residential and commercial margin in
the second quarter, before adjustments due to NW Natural's weather
normalizing mechanism in Oregon, was down from last year by $9.0
million, or 15 percent, equivalent to about 20 cents a diluted share.
Heating degree-days for the quarter were 31 percent lower than average
and 36 percent lower than last year.
o The Company's Weather Adjusted Rate Mechanism - "WARM" - contributed
$3.4 million of margin in the second quarter, equivalent to about 7
cents a diluted share, helping to offset the loss due to the warm
weather. WARM was not yet in effect in the second quarter of 2003.
o Separate regulatory mechanisms in Oregon and Washington designed to
ensure the Company's recovery of pipeline demand charges contributed
another $2.8 million of margin in the second quarter, equivalent to 6
cents a share.
o Utility sales and transportation deliveries to industrial customers in
the second quarter were 136 million therms, up 14 percent from 2003.
Margin from industrial customers was up $0.4 million, or about 5
percent. The volume and margin improvements in the industrial market
reflect the addition of a large new customer, an improving economy and
some rate design changes approved in the Oregon general rate case in
2003.
In the residential and commercial markets, the depressed sales and
margin due to warm weather in the second quarter were offset in large part by
the Company's weather normalization mechanism in Oregon and its demand charge
recovery mechanisms in Oregon and Washington. WARM was approved by the Public
Utility Commission of Oregon (OPUC) as part of the settlement of NW Natural's
2003 Oregon general rate case. WARM applies to meter readings of participating
Oregon customers taken between Nov. 15 and May 15. WARM adjustments covered
about half of NW Natural's total weather variability in the second quarter.
The weather-related margin loss in the second quarter also was
mitigated by the effects of continuing customer growth. NW Natural had 582,270
customers as of June 30, 2004, up 2.7 percent from a year earlier. The Company
estimates that customer growth in the residential and commercial markets
contributed 3 million therms of sales and $1.6 million of margin to the results
for the second quarter.
Rate increases approved by the OPUC in NW Natural's Oregon general rate
case, effective in late 2003, contributed an estimated $2.5 million in margin to
the results for the second quarter of 2004, equivalent to 5 cents a diluted
share of earnings. These increases included rate recognition of the first phase
of a major extension of the pipeline that brings gas from NW Natural's Mist
storage field to the Portland metropolitan area.
NW Natural has a Purchased Gas Adjustment (PGA) tariff in Oregon under
which it absorbs 33 percent of any excess cost of gas, or retains 33 percent of
any savings, both as compared to the gas commodity prices built into rates. The
Company also has an off-system gas sales program under which it shares margins
realized from its sales in the off-system market of natural gas that was under
contract with gas suppliers but was not required for delivery to core market
customers. NW Natural's share of the savings and margins realized from its gas
commodity and off-system gas sales programs in the second quarter of 2004
contributed $1.4 million of margin, equivalent to 3 cents a diluted share of
earnings. The equivalent result in the second quarter of 2003 was shared savings
and margins of $0.3 million, equivalent to about 1 cent a share of earnings.
NW Natural's partial decoupling mechanism, approved by the OPUC in 2002
as part of the Company's Conservation Tariff, reduced margin by $1.2 million in
the second quarter of 2004, equivalent to 3 cents a diluted share, compared to a
contribution to margin of $0.9 million or 2 cents a share in the second quarter
of 2003. The decoupling mechanism was designed to break the link between the
Company's earnings and the quantity of energy consumed by its customers, so the
Company does not have an incentive to discourage customers' conservation
efforts.
Results for the second quarter include charges of $0.9 million
(pre-tax), equivalent to 2 cents a share, due to a stipulation filed with the
OPUC settling an investigation relating to NW Natural's interests in certain
downtown Portland real estate, including the use of some of these properties for
employee parking. The settlement has the primary effect of reversing cost
recovery as of Sept. 1, 2003, for certain properties that should not have been
included in rate base in NW Natural's 2003 Oregon general rate case, and for
certain employee parking costs. The OPUC is expected to act on the stipulation
in July or August 2004.
The Company earned $0.7 million from its gas storage segment in the
second quarter, after tax and revenue sharing, compared to $1.2 million in the
second quarter of 2003. The Company also earned $0.3 million from its subsidiary
and other non-utility operations in the second quarter of 2004, compared to
earnings of $0.4 million in the second quarter of 2003. The earnings from the
storage segment were equivalent to 3 cents a diluted share, compared to earnings
of 5 cents a diluted share in the second quarter of 2003. The Company provides
gas storage services to customers in the interstate market from its Mist gas
storage field, using storage capacity that has been developed in advance of core
utility customers' (residential, commercial and industrial firm) requirements.
Income from the gas storage segment includes the results from a contract with an
independent energy trading company that seeks to optimize the use of NW
Natural's assets by trading temporarily unused portions of its gas storage
capacity and upstream pipeline transportation capacity. Following a pattern set
in the first quarter of this year, earnings from the storage segment in the
second quarter were lower than last year primarily due to a lower contribution
from the optimization contract.
Six-Month Results
- -----------------
Results for the six months ended June 30, 2004, were earnings
applicable to common stock of $31.9 million, or $1.19 a diluted share, compared
to earnings of $30.6 million, or $1.18 a diluted share, in the first six months
of 2003. Reported results in 2004 for the first quarter (earnings of $1.24 a
diluted share) and the second quarter (loss of $0.03 a diluted share) do not sum
to the result for the first six months of the year ($1.19 a diluted share) due
to the effects of the 1.3 million additional shares of common stock NW Natural
sold in a public offering at the beginning of the second quarter.
Operating margin in the first six months of 2004 was $165 million, up
$7.5 million or 5 percent from last year. Total gas deliveries were 607 million
therms, also up about 5 percent from last year.
The primary factors affecting income and earnings from gas utility
operations in the second quarter included:
o Utility sales to residential and commercial customers were 325 million
therms, down about 2 percent from last year. Residential and
commercial margin before weather normalization adjustments was up $6.9
million, or about 4 percent. The overall margin improvement in these
market segments was primarily due to rate increases and customer
growth, despite weather that was 10 percent warmer than average for
the six-month period and 6 percent warmer than last year.
o Utility sales and transportation deliveries to industrial customers
were 282 million therms, up about 14 percent from last year. Margin
from these customers was up $1.5 million, or about 8 percent.
o NW Natural's weather normalization mechanism contributed $6.1 million
of margin in the first half of 2004, equivalent to 14 cents a diluted
share.
o The partial decoupling mechanism in NW Natural's Conservation Tariff
reduced margin by $0.2 million, equivalent to less than 1 cent a
share, compared to a contribution to margin of $1.4 million, or 3
cents a share, in the first six months of 2003.
o Rate increases from the Oregon general rate case contributed an
estimated $7.2 million of margin in the first six months of 2004,
equivalent to 16 cents a share of earnings.
NW Natural earned $1.5 million after tax and revenue sharing,
equivalent to 6 cents a diluted share, from interstate gas storage services in
the first six months of 2004, compared to earnings from storage services of $2.5
million or 10 cents a share in the first half of 2003.
NW Natural's share of the savings and margins realized from its gas
commodity and off-system gas sales programs under its PGA tariff contributed
$0.6 million of margin in the first six months of 2004, equivalent to about 1
cent a diluted share of earnings. The equivalent result in the first half of
2003 was $4.9 million of margin, equivalent to 11 cents a diluted share of
earnings.
Updated Outlook for 2004
- ------------------------
NW Natural previously reported that as a matter of practice it would
not be providing specific earnings guidance for each quarter of the year, but
that with each earnings announcement it would explain how the results from the
prior quarter affect the prospects for the year as a whole.
The Company's results in the second quarter were negatively affected by
the lost sales margin in the residential and commercial markets resulting from
the portion of the warmer-than-average weather that was not covered by NW
Natural's weather normalization mechanism in Oregon, and by the impact of the
settlement in the OPUC investigation of downtown Portland real estate issues.
These factors would imply a reduction in earnings for the year of about 10 cents
a share, reducing the estimate for the year to $1.75 - $1.90 a share. The
Company will be working to mitigate these effects through cost savings or other
actions in the second half of the year. Consistent with prior earnings guidance,
this estimate assumes average weather conditions for the balance of the year.
The estimate also includes the projected effects of rate changes or deferrals to
be applied in 2004 upon completion of the remaining phase of NW Natural's
project for the extension of its natural gas pipeline from the Mist gas storage
field.
Due to the seasonal effects of the rate increases from the Oregon
general rate case, as explained above, and because the Company expects results
from its interstate gas storage, optimization and off-system sales activities to
continue to be lower than last year's, it can be expected that results in the
third quarter of 2004 will be weaker than the results for the equivalent quarter
in 2003.
Dividends Declared
- ------------------
The Board of Directors of NW Natural has declared a quarterly dividend
of 32.5 cents a share on the Company's common stock. The dividends will be paid
on August 13, 2004, to shareholders of record on July 30, 2004.
NOTE: This report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's future operating results will be affected by various uncertainties and
risk factors, many of which are beyond the Company's control, including
governmental policy and regulatory action, the competitive environment and
economic factors, as well as weather conditions. For a more complete description
of these uncertainties and risk factors, see the Company's filings with the
Securities and Exchange Commission on Form 10-K for the year ended Dec. 31,
2003, and on Form 10-Q for the quarter ended March 31, 2004.
In addition to presenting results of operations and earnings amounts in
total, NW Natural has expressed certain measures in this press release in cents
per share on a diluted basis. These amounts reflect factors that directly impact
the Company's earnings. NW Natural believes this per share information is useful
because it enables readers to better understand the impact of these factors on
its earnings.
-0-
PRESS CONTACT: Steve Sechrist
503/226-4211 Ext. 3517
INVESTOR CONTACT: James Boehlke
503/721-2451
503/226-4211 Ext. 2451
NORTHWEST NATURAL GAS COMPANY
Comparative Income Statement
(Consolidated - Unaudited)
Three Months Ended
------------------ Increase
6/30/04 6/30/03 (Decrease)
------- ------- ----------
1.Gross Operating Revenues $ 109,659,000 $ 117,489,000 $ (7,830,000)
2.Net Income (Loss) $ (716,000) $ 4,462,000 $ (5,178,000)
a/3.Earnings (Loss) Applicable to
Common Stock $ (716,000) $ 4,315,000 $ (5,031,000)
4.Average Shares of
Common Stock
Outstanding 27,257,000 25,682,000 1,575,000
a/5.Basic Earnings (Loss) Per Share
of Common Stock $ (0.03) $ 0.17 $ (0.20)
a/6.Diluted Earnings (Loss) Per Share
of Common Stock $ (0.03) $ 0.17 $ (0.20)
Year to Date
------------
6/30/04 6/30/03 Increase
------- ------- --------
1.Gross Operating Revenues $ 364,109,000 $ 324,028,000 $ 40,081,000
2.Net Income $ 31,896,000 $ 30,866,000 $ 1,030,000
a/3.Earnings Applicable to
Common Stock $ 31,896,000 $ 30,572,000 $ 1,324,000
4.Average Shares of
Common Stock
Outstanding 26,615,000 25,649,000 966,000
a/5.Basic Earnings Per Share
of Common Stock $ 1.20 $ 1.19 $ 0.01
a/6.Diluted Earnings Per Share
of Common Stock $ 1.19 $ 1.18 $ 0.01
a/ After allowance for preferred and preference stock dividend requirements.
NORTHWEST NATURAL GAS COMPANY
Comparative Income Statement
(Consolidated - Unaudited)
Twelve Months Ended
-------------------
6/30/04 6/30/03 Increase
------- ------- --------
1.Gross Operating Revenues $ 651,337,000 $ 584,968,000 $ 66,369,000
2.Net Income $ 47,013,000 $ 43,203,000 $ 3,810,000
a/3.Earnings Applicable to
Common Stock $ 47,013,000 $ 41,814,000 $ 5,199,000
4.Average Shares of
Common Stock Outstanding 26,224,000 25,586,000 638,000
a/5.Basic Earnings Per Share
of Common Stock $ 1.79 $ 1.63 $ 0.16
a/6.Diluted Earnings Per Share
of Common Stock $ 1.78 $ 1.62 $ 0.16
NORTHWEST NATURAL GAS COMPANY
FINANCIAL HIGHLIGHTS
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SECOND QUARTER - 2004
3 MONTHS ENDED 6 MONTHS ENDED 12 MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
2004 2003 2004 2003 2004 2003
-------------------------- -------------------------- --------------------------
Gross Operating Revenues $ 109,659 $ 117,489 $ 364,109 $ 324,028 $ 651,337 $ 584,968
Cost of Sales 57,030 58,940 199,446 166,891 355,745 307,517
-------------------------- -------------------------- ---------------------------
Operating Margin 52,629 58,549 164,663 157,137 295,592 277,451
Operating Expense:
O&M 24,307 23,331 49,817 47,402 98,835 90,120
Other Taxes 7,531 7,350 19,984 18,167 36,942 33,389
D&A 13,913 13,338 27,819 26,504 55,564 52,996
-------------------------- -------------------------- ---------------------------
Total Operating Expenses 45,751 44,019 97,620 92,073 191,341 176,505
-------------------------- -------------------------- ---------------------------
Operating Income 6,878 14,530 67,043 65,064 104,251 100,946
Other Income 442 1,348 465 764 1,851 301
Interest Charges - Net 8,764 9,126 17,708 18,072 34,735 35,478
Income Tax Expense (Benefit) (728) 2,290 17,904 16,890 24,354 22,566
-------------------------- -------------------------- ----------------------------
Net (Loss) Income from Operations (716) 4,462 31,896 30,866 47,013 43,203
Preferred and Preference Dividends - 147 - 294 - 1,389
-------------------------- -------------------------- ---------------------------
Earnings (Loss) Applicable to
Common Stock $ (716) $ 4,315 $ 31,896 $ 30,572 $ 47,013 $ 41,814
========================== ========================== ===========================
Common Shares Outstanding:
Average for Period 27,257 25,682 26,615 25,649 26,224 25,586
End of period 27,336 25,726 27,336 25,726 27,336 25,726
Earnings (Loss) per Share:
Basic $ (0.03) $ 0.17 $ 1.20 $ 1.19 $ 1.79 $ 1.63
Diluted $ (0.03) $ 0.17 $ 1.19 $ 1.18 $ 1.78 $ 1.62
Dividends Paid Per Share $ 0.325 $ 0.315 $ 0.65 $ 0.63 $ 1.29 $ 1.26
Book Value Per Share - end of period $ 20.60 $ 19.44 $ 20.60 $ 19.44 $ 20.60 $ 19.44
Market Closing Price - end of period $ 30.50 $ 27.25 $ 30.50 $ 27.25 $ 30.50 $ 27.25
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $ 1,580,031 $ 1,455,412 $ 1,580,031 $ 1,455,412 $ 1,580,031 $ 1,455,412
Common Stock Equity $ 563,004 $ 500,241 $ 563,004 $ 500,241 $ 563,004 $ 500,241
Long-term debt and redeemable $ 500,073 $ 458,358 $ 500,073 $ 458,358 $ 500,073 458,358
preferred stock (including amounts
due in one year)
OPERATING STATISTICS:
Total Customers-end of period 582,270 566,955 582,270 566,955 582,270 566,955
Gas Deliveries (therms)
Res. & Comm. Customers 82,961 110,458 325,437 330,219 577,108 574,085
Industrial Firm 14,157 11,967 32,667 26,521 61,460 50,306
Industrial Interruptible 22,980 8,303 47,356 11,988 83,362 17,949
Transportation 98,609 98,916 201,567 208,076 408,045 436,727
-------------------------- -------------------------- ---------------------------
Total 218,707 229,644 607,027 576,804 1,129,975 1,079,067
Gas Revenues
Res. & Comm. Customers $ 81,649 $ 94,684 $ 306,639 $ 281,257 $ 544,705 $ 504,836
Industrial Firm 9,259 7,019 21,553 15,685 39,446 31,759
Industrial Interruptible 11,061 4,099 23,035 5,943 40,753 9,309
Transportation 3,156 5,048 6,451 10,853 13,560 22,990
Other revenues 2,886 4,196 2,931 5,247 5,144 7,186
-------------------------- -------------------------- ---------------------------
Total $ 108,011 $ 115,046 $ 360,609 $ 318,985 $ 643,608 $ 576,080
Cost of gas sold $ 57,016 $ 58,934 $ 199,416 $ 166,868 $ 355,676 $ 307,464
Net operating revenues (utility margin) $ 50,995 $ 56,112 $ 161,193 $ 152,117 $ 287,932 $ 268,616
Degree Days
Normal (25-year average) 677 679 2,529 2,536 4,231 4,144
Actual 469 730 2,276 2,413 3,815 3,996
Colder (warmer) than normal -31% 8% -10% -5% -10% -4%